Whilst investing in wine is by no means a new phenomenon - shrewd buyers have been buying more than they need for their own consumption for decades - the wine market today has more investment money in it than ever before.
The wine investment market is one that looks more and more interesting every day. The appeal of fine wine as an asset class is largely down to its long-term historical success, explained by the fundamental that is almost unique to this market – genuine scarcity. The fine wine investment market mainly focuses on the top 20 or so chateaux of Bordeaux, production of which is limited each year, indeed diminishing as proprietors endeavour to make even better wine. Moreover, supply of the finished product is always diminishing as the wine is being consumed.
The other key pro that wine investment has in its favour is the growing demand for wine at all levels. At the more everyday end of the market this is easily seen in the ever increasing range of wines being offered by supermarkets and the like. Demand for wines at the top end, investment grade wines, is seen by those in the business, or those dining in fine restaurants in the Far East. Demand from the Far East played a huge part in the unprecedented boom in fine wine prices from 2005 to 2007.
It is not a bullet-proof market, though. Whilst most owners of first growth claret purchased pre 2007 will be happy, those who bought top 2005s at the tail end of the boom in 2007 will not be smiling for the moment. Although the fine wine market seemed almost immune to the travails of the wider economy right up to September 2008, the credit crisis finally bit in October of that year. As the macro economic woes hit hard, the asking prices of a handful of wines dropped by as much as 40% in a matter of weeks. One of the most notable drops was seen in the price of the 2005 Chateau Lafite-Rothschild. The 2005 Lafite was released in June 2006 at circa £3,800 per case rising to almost £10,000 a case by the early summer of 2008. By November 2008 this could be bought for £6,000, though the price has since recovered and the “correct” price today is circa £6,800 per case.
One should note the price falls were not across the board. The 2005 vintage was the worst hit, probably both because prices had risen very quickly and because it was a relatively “liquid” vintage – there was no shortage of stock available to sell. Go back just five years, though, and the 2000 vintage, the only young vintage of comparable quality, was much less affected. The 2000 Lafite-Rothschild, priced at £10,000 a case before the drop, remained relatively unaffected, and is now a £12,500.
Wine is a long-term investment. It is rarely something to buy and trade immediately, not least because of the transaction costs. A merchant or broker will be making at least 10% on any deal, so to sell the day after buying will mean an immediate loss. The nature of the wines that would make up any investment cellar is such that time is needed to see results: first growth clarets from a good vintage ideally want 20 years in bottle before showing their potential. As such, buyers who have lost money on paper from buying at the high points may well end up winners if they sit tight.
But, if it all fails, wine is not only a tangible asset but a pleasurable one. “If your investment does not work then you can always drink it” is a cliché but true - share certificates make poor eating.
